Medicare drug bill redraws landscape

With 54-44 vote, Senate passes measure

Those six cities would be chosen by Health and Human Services Secretary Tommy Thompson. Already, several senators have asked Thompson not to select cities in their state. For example, Sen. Lincoln Chafee (R-R.I.) agreed to support Republican leaders on a procedural vote if they would ensure that Providence be excluded.

Pilot programs in 42 cities

Forty-two cities in the nation are participating in a smaller scale demonstration project with preferred provider organizations, called PPOs, providing health coverage to Medicare recipients, said Tom Scully, administrator of the Centers for Medicare & Medicaid Services, the agency that runs those programs.

Senate Democrats say they fear that the introduction of private insurance plans into the Medicare program will lead to the eventual dismantling of traditional fee-for-service Medicare, which allows seniors to choose their own doctors.

The three Democratic senators running for president all opposed the plan. Neither Sens. John Kerry (D-Mass.) nor Joseph Lieberman (D-Conn.) showed up for the final vote; John Edwards (D-N.C.) voted against the bill.

Also for the first time, the legislation will require seniors with annual incomes of more than $80,000 to pay higher premiums under Medicare Part B, which covers non-hospital services. The size of those premiums would increase to up to 80 percent for people with incomes above $200,000.

The legislation also will establish new tax-preferred health accounts, open to individuals with high-deductible insurance policies, giving them a tax break on money they save for health costs. Called Health Savings Accounts, they are a favorite of conservative Republicans.

Canadian drugs out

Over the protests of some lawmakers, the legislation will essentially prevent Americans from buying drugs in Canada by requiring the Health and Human Services Department to first certify that it is safe to do so. Thompson has said he would not do that.

The bill also prohibits the Medicare program from negotiating the cost of drugs with pharmaceutical companies, which some say would significantly reduce the costs of those drugs. Because of that, analysts say it will be just as difficult for Medicare to control its spending on drugs as it has been in the private sector.

Democrats have characterized the plan as a giveaway to large drug companies, and some analysts concurred that the drug industry will see a huge jump in profits.

"This is going to have to mean huge increases in their gross income because there is going to be an increase in demand for drugs," said Timothy McBride, professor of health management and policy at St. Louis University School of Public Health. "The people that are not covered by Medicare right now will now get some coverage so there is some pent-up demand for drugs. That has got to be a big boon for the drug companies."

Many health plans say they have been powerless to control physicians' prescribing habits, and that seniors will be vulnerable to an onslaught of television ads encouraging consumers to try the latest and often most expensive brand-name drugs.

"The effect of this bill will be to vastly increase the demand for prescription drugs," McBride said. "From an economist's perspective, what that does is increase prices, not lower them."